Laird PLC Final results for the year ended 31 December 2017 & Recommended Cash Acquisition Much improved results lay strong foundations for future

Transcription

1 1 March 2018 Laird PLC Final results for the year ended 31 December 2017 & Recommended Cash Acquisition Much improved results lay strong foundations for future 12 months to 31/12/ months to 31/12/2016 Change Revenue 936.6m 801.6m +17% Underlying operating profit 76.9m 61.9m +24% Operating profit / (loss) 63.8m (109.6)m - Underlying profit before tax 67.3m 51.1m +32% Profit / (loss) before tax 57.0m (122.3)m - Underlying basic earnings per share * 11.1p 10.5p +6% Basic earnings / (loss) per share* 15.8p (31.8)p - Operating cash flow 51.8m 28.1m +84% Cash generated from operations 83.8m 75.9m +10% Net debt 164.4m 344.6m -52% Dividend per share interim only 1.13p 4.53p -75% Non-IFRS measures. For the definition and explanation of the use of this non-ifrs information, which is used throughout, and reconciliations to the most directly reconcilable IFRS line item, see the Appendix to this announcement. *2016 restated for the bonus element of the 2017 rights issue Recommended Cash Acquisition The Board is pleased to announce that it has reached agreement on the terms of a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Laird, to be effected by means of a scheme of arrangement under Part 26 of the Companies Act Under the terms of the acquisition, shareholders will be entitled to receive 200p in cash for each Laird share held, representing a premium of approximately 72.6 per cent to the closing price of Laird shares of 115.9p on 28 February 2018 The bidder is a wholly-owned indirect subsidiary of funds managed by Advent International Corporation See 2.7 notice for further information Financial Summary Much improved Group financial performance, with continued progress across all three divisions Group revenue up 17% on a reported basis and up 10% on an organic constant currency basis Underlying profit before tax improved by 32% to 67.3m driven by revenue growth and operating margin improvement Profit before tax was 57.0m, improved from a loss of (122.3)m in 2016 Operating cash flow increased 84% to 51.8m due to improved profitability and tight control of capital expenditure Net debt to Underlying EBITDA was 1.4x compared to 3.2x at last year-end following successful completion of 185m rights issue in April and improved cash generation 1

2 As a result of today s announcement on the recommended cash acquisition, no final dividend is currently proposed Operational Highlights New divisional structure has brought efficiencies and enabled a greater focus on complementary markets and technologies Significantly strengthened the Executive Committee and Divisional leadership teams Ongoing investment in engineering capability and new products to support future revenue and earnings growth The Group continues to deliver the planned cost savings identified as part of our operating model redesign with over $15m of benefits seen in 2017 and a further $5m of benefits expected in 2018 Short-Term Outlook The Group has started the year with good underlying trading momentum across the majority of the business with new business wins and new product launches expected to support future growth During 2018, on an organic constant currency basis, this growth is expected to more than offset possible challenges in the premium smartphone market Recent volatility in foreign exchange rates (particularly the strengthening of Sterling against the US Dollar and the strengthening of Renminbi against the US Dollar) currently presents a significant headwind in 2018, given our reporting currency is Sterling Tony Quinlan, Chief Executive, commented: Laird has made significant progress and delivered a much improved performance in In my first year as CEO, we ve simplified structures, enhanced the quality of the leadership and focussed on improving the efficiency and profitability of all Laird s operations. These actions have delivered much improved results, and have built strong foundations for the future. We expect to demonstrate continued progress in underlying financial performance in 2018, despite currency headwinds given our reporting currency is Sterling. Laird is a high quality business, as our 2017 results demonstrate. This quality has been recognised by Advent International and their cash offer for the Group represents good value and certainty for shareholders. Laird s history goes back almost 200 years and the business has evolved over that time into the global engineering company of today. I believe for its next chapter, Laird will benefit from private ownership as it further strengthens its business model and looks to the future. Divisional Highlights Performance Materials (PM) Good revenue growth of 8% on an organic constant currency basis and 14% on a reported basis, albeit against a weak comparative in the prior year Revenue growth in all parts of the Division, but particularly Precision Metals and Thermal Materials The focus on increasing productivity, improving our internal processes and correcting our commercial inefficiencies has started to deliver better results 2

3 Connected Vehicle Solutions (CVS) Strong revenue growth of 18% on an organic constant currency basis and 26% on a reported basis Operating margin continues to be impacted by investments to drive long term growth New business wins in the year have lifetime revenues of around $750m, with revenues expected from 2019 to We continue to benefit from the very strong customer relationships we have in both the US and Europe Established a new R&D centre in Grand Blanc, Michigan, in the heart of the US automotive industry Wireless and Thermal Systems (WTS) Revenue growth of 4% on an organic constant currency basis, improving from flat in the first half, and 10% growth on a reported basis Benefits from operating model redesign have contributed to strong operating margin improvement Synergies from establishing and optimising the new divisional structure are being delivered This announcement contains inside information About Laird Laird is a global technology company providing systems, components and solutions that protect electronics from electromagnetic interference and heat, and that enable connectivity in mission critical wireless applications and antennae systems. We are a global leader in the field of innovative radio frequency ( RF ) engineering. Enquiries: Laird PLC Tony Quinlan, Chief Executive Officer Kevin Dangerfield, Chief Financial Officer Richard Harris, Head of Investor Relations MHP Reg Hoare Tim Rowntree Ollie Hoare Tel: +44 (0) Tel: +44 (0) Results Presentation & Webcast An analyst presentation will be held today at 9.00am at The Milton Suite, The Grange St. Paul s Hotel, 10 Godliman Street, London EC4V 5AJ. A live audio webcast of the presentation will be hosted on A replay of the webcast will also be available on our website for two weeks after the event. 3

4 GROUP PERFORMANCE REVIEW Laird has made significant progress and delivered a much improved performance in 2017, with continued progress across all three divisions, underpinned by our resolute focus on operational excellence. The new divisional structure has brought efficiencies and enabled a greater focus on complementary markets and technologies. In creating the new Wireless and Thermal Systems Division, we have taken three technologies (Connectivity, Controls and Thermal) from what were four separate business units to form one division where the whole is greater than the sum of the parts. During the year we have significantly strengthened Laird s Executive Committee and the Divisional leadership teams. Seven of the ten Executive Committee are either new to the business or new in role in the last 18 months and bring with them the skills necessary for the next stage of Laird s development. We will continue to invest in our talent to continue our progress. We have continued to invest in engineering capability and new product development, particularly in Connected Vehicle Solutions and Wireless and Thermal Systems, to ensure we continue to offer new market-leading products that deliver on our customers most demanding needs. This investment will continue over the next few years to ensure we build the pipeline of new business needed to drive future revenue and earnings growth. In the year, we won new business valued at around $750m in CVS which is expected to generate revenue between 2019 and The Group continues to deliver the planned cost savings identified as part of our operating model re-design with over $15m of benefits delivered in In particular, the operating margin growth seen in Wireless and Thermal Systems Division was driven by a consolidation in the number of our manufacturing sites. A further $5m of incremental benefits is expected to be delivered in Finally, we successfully completed the rights issue in April 2017, enabling the Group to reduce its borrowings under the existing revolving credit facilities. This significantly strengthened the Group s financial position, leaving Laird better placed to take advantage of the significant growth opportunities that exist in our end markets. Revenue Reported revenue increased by 17% to 936.6m (2016: 801.6m), driven by growth in all three divisions and positive currency effects. On an organic constant currency basis, revenue increased by 10%. Underlying operating profit /operating margin Underlying operating profit increased 24% to 76.9m (2016: 61.9m) with operating margin increasing to 8.2% (2016: 7.7%). The revenue and underlying operating profit of the divisions and the Group as a whole is shown in the table below: 4

5 12 months to 31 December PM CVS WTS Unallocated Total 2017 Revenue ( m) Underlying operating profit ( m) (5.8) Underlying operating margin (%) 10.5% 5.0% 11.7% (0.6)% 8.2% 2016 Revenue ( m) Underlying operating profit ( m) (7.6) Underlying operating margin (%) 10.7% 5.2% 9.3% (0.9)% 7.7% Underlying profit before tax /profit before tax Underlying profit before tax increased 32% to 67.3m (2016: 51.1m). Reported profit / (loss) before tax was 57.0m (2016: (122.3)m). Dividend As a result of the recommended cash acquisition announced today, there is currently no final dividend proposed. The total dividend for the year will therefore be equal to the interim dividend of 1.13p (2016: 4.53p). DIVISIONAL REVIEW Performance Materials 12 months to 31 December Change m m Revenue % Underlying operating profit % Underlying operating margin 10.5% 10.7% Performance Materials revenue increased 13% to 448.3m (2016: 395.0m). Organic constant currency revenue increased by 8% versus the same period last year with particularly strong growth in Precision Metals and Thermal Materials. In Thermal Materials, strong performance in the automotive market has contributed to our revenue growth. The proliferation of electronics within the vehicle requires thermal and shielding solutions. Medical and absorber markets in the US are also delivering good results and remain promising focus areas for the future. In Precision Metals, sales growth was linked to the launch of new smartphone models in the second half of The priority for the past year has been to stabilise financial performance after a disappointing The revenue growth in 2017 demonstrates that the actions taken to stabilise and improve our commercial and operational performance, along with our customer-obsessed mind-set and broad range of materials science solutions have delivered results. 5

6 Underlying operating profit was up 11% at 47.0m (2016: 42.2m), although the operating margin fell to 10.5% (2016: 10.7%) as the revenue mix moved towards lower than average margin business (smartphone handsets). We continue working towards establishing an operating model that can deliver earnings growth, year on year, through the smartphone cycle, while continuing to target investment in non-smartphone business to drive diversification. We aim to leverage our unique materials science capability to develop differentiated solutions for our customers, a key to driving future profitability. The Group is in discussion with regard to the probable disposal of Laird s 51% share of Model Solution, the prototype and mock-up business based in South Korea. As a result, the business has been classified as an asset held for sale. Connected Vehicle Solutions 12 months to 31 December Change m m Revenue % Underlying operating profit % Underlying operating margin 5.0% 5.2% Connected Vehicle Solutions revenue increased significantly by 26% to 318.6m (2016: 252.1m). Organic revenue at constant currency increased by 18% compared to the same period last year. This was driven by continued strong performance in multi-functional antenna and the high growth in demand for smart device integration products (compensers, USB hubs and wireless charging units) was a successful year for CVS with the Division delivering superior revenue growth in a buoyant and competitive market. Content requirements within the vehicle continue to increase and our broad connectivity product offering has proven to be a real advantage. We continue to benefit from the strong relationships we have with automotive manufacturers in both North America and Europe. Underlying operating profit was up 22% at 15.9m (2016: 13.0m) with underlying operating margin falling slightly to 5.0% given the continued investment in the business, particularly in engineering capability. The automotive market has very strong growth dynamics, but is also highly competitive. It takes early investment to win new business, not all of which is capitalised, which has impacted operating margin in the year. This investment in 2017 has paid off as the Division won new business valued at around $750m which is expected to generate revenue from 2019 to During the year we opened a new state-of-the-art research and development facility in Grand Blanc, Michigan. The new site provides engineering solutions, sophisticated testing labs for quality assurance, an outdoor testing range and a world class testing chamber. As previously announced, the Division exited the loss-making business in Brazil in the first half of

7 Wireless and Thermal Systems 12 months to 31 December Change m m Revenue % Underlying operating profit % Underlying operating margin 11.7% 9.3% Wireless and Thermal Systems revenue increased 10% to 169.7m (2016: 154.5m). Organic revenue at constant currency increased 4%. The focus of the past year has been on successfully establishing this new division. We have taken three technologies (Connectivity, Controls and Thermal) from what were four separate business units to form a Division where the whole is greater than the sum of the parts. Connectivity drove strong revenue growth, accelerating in the second half of the year. Medical, public safety, telecom and commercial markets saw the largest growth, driven in part by new product launches throughout the year. Examples include the 60 series Wi-Fi module targeting medical and commercial applications and the LoRa gateway, which provides long range, low data rate connectivity. Controls stabilised financial performance through better execution in core markets. Whilst the US rail freight industry has not rebounded materially since the sharp declines seen in 2016, our industrial markets globally have experienced modest growth. Thermal saw solid revenue growth during the year, muted slightly by the timing of key customer programmes. Underlying operating profit was up 38% at 19.8m (2016: 14.3m) and the operating margin increased significantly to 11.7% (2016: 9.3%). The operating margin improvement was driven by benefits from the redesign of the operating model, announced in late 2015, as well as the streamlined operating structure that was put in place at the beginning of During the year we have made investments in new and improved products across all of our segments, supported by improved sales, marketing and product management capabilities. These investments, combined with the changes already made to the organisational structure, set us up well to drive revenue and earnings growth in the future. 7

8 FINANCE REVIEW Profit before tax Statutory profit before tax was 57.0m (2016: (122.3)m) for the year. The following sections break down the movement into its component parts. Underlying operating profit The table below provides further analysis of the underlying operating profit. The gross profit percentage of 33.7% is lower year on year, primarily reflecting a mix effect, with revenue growth biased towards lower gross margin products. SG&A increased marginally year on year due to translation of costs into Sterling offset by underlying savings from the redesign of the operating model. The increase in R&D to 90.9m (9.7% of revenue), up from 69.8m in 2016 (8.7% of revenue), is also driven by the translation of those costs into Sterling and partly due to continued investment in future growth opportunities. Net capitalised development was marginally up on last year at 7.3m (2016: 6.8m). Underlying operating margin increased to 8.2% (2016: 7.7%). 12 months to 31 December 2017 m Revenue m Cost of sales (621.3) (522.3) Gross profit Gross margin % 33.7% 34.8% SG&A (154.8) (154.4) Gross R&D (90.9) (69.8) Net capitalised development Underlying operating profit Underlying operating margin 8.2% 7.7% Underlying profit before tax Underlying profit before tax increased 32% to 67.3m (2016: 51.1m). This measure excludes exceptional items, amortisation of acquired intangible assets and fair value movements on financial instruments. Exceptional items There was a net exceptional credit of 0.7m (2016: 1.2m credit) in the year as shown in the table below: 12 months to 31 December 2017 m Restructuring (costs) / credit (7.3) 0.4 Acquisition related credit Change in valuation of options in respect of Model Solution Costs related to rights issue and covenant waiver fees - (3.0) Total exceptional items m Restructuring costs include charges associated with the reorganisation of the business into three Divisions and the closure of the CVS site in Brazil, partially offset by a credit relating to the re-design of our operating model. The acquisition related credits relate to a settlement with the previous owner of Novero, a 8

9 settlement with an ex-sales representative of Novero and the release of an onerous contract provision that was on the balance sheet when we acquired Novero which has been exited during the year. Exceptional costs charged to the P&L are expected to be nil in There will be a residual exceptional cash outflow of approximately 9m relating to exceptional costs already incurred. Amortisation of acquired intangible assets Total amortisation of acquired intangible assets was 13.8m, down from 17.2m in 2016 as some historic assets have been fully written down. Finance costs Finance costs, before fair value movements, were 9.6m (2016: 10.8m). Interest cover was 10.2 times (2016: 7.0 times). Fair value movements on financial instruments resulted in a gain of 2.8m (2016: loss of 1.9m). Taxation The underlying tax charge on underlying profit before tax is equivalent to an average tax rate of 24.1% (2016: 24.9%). This was lower than anticipated as some transfer pricing provisions were released as the risk attached to them has reduced. Profits in the US in the period were sheltered by amortised goodwill deductions resulting from previous acquisitions and interest expense. As a result, Laird s tax payable largely arises in China, Czech Republic, South Korea and Malaysia. It is expected that the underlying effective tax rate for 2018 will be c.24%, subject to any unexpected changes to tax rates in the countries in which we operate and the mix of profits across jurisdictions being as planned. The reduction in the tax rate from the prior year is primarily due to the impact of changes in the Group s profit mix and amendments to the Group s transfer pricing policies to ensure alignment with the divisional reorganisation in This is partly offset by an increase in current tax payable due to the US tax reforms enacted at the end of 2017 (see below). Impact of US tax reform In December 2017 the US enacted the Tax Cuts and Jobs Act ( the Act ) which came into effect on 1 January The measures included in the Act, subject to any further specific guidance on interpretation being released, give rise to an initial one-off non-cash tax credit of 38.5m in 2017 resulting from the revaluation of the Group's aggregate US Deferred Tax Liabilities following the reduction in the US federal rate of corporate income tax to 21%. The rate change also gives rise to a one-off non-cash tax charge of 17.7m in 2017 resulting from the revaluation of the Group's US Deferred Tax Assets related to broughtforward losses of 9.2m, and in respect of other US Deferred Tax Assets of 8.5m. Following the changes in the US tax regime, the Group has reassessed the amount of the Deferred Tax Asset that should be recognised in respect of US brought-forward losses. This revaluation has led to the recognition of an additional deferred tax asset of 5.7m in The Act also includes a transition tax as the US moves to an exemption regime for foreign dividends. There is a one-off amount of 3.0m in respect of cumulative retained earnings of foreign subsidiaries that is covered by brought forward tax losses and therefore not expected to result in a cash payment. 9

10 Laird continues to work through the details of this complex legislation and the associated guidance. It is not expected that there will be an increase in the underlying tax charge for the Group as a result of these reforms, although there will be a small increase in the cash tax payable by the Group in the US in 2018 and beyond. Profit after tax The profit after tax for the year was 71.8m (2016: (110.8)m) reflecting the items above. Underlying earnings per share Underlying basic earnings per share grew 6% to 11.1p (2016 restated: 10.5p). Underlying earnings are based on underlying profit less underlying tax and exclude deferred tax on acquired intangible assets, goodwill and US capitalised development costs. The average number of shares in issue in 2017 was 452.7m, compared with 350.9m in 2016 (restated for the bonus element of the rights issue). Basic earnings per share Basic earnings per share increased to 15.8p, up from (31.8)p last year. Cash flow In 2017, Laird delivered an operating cash flow of 51.8m (2016: 28.1m), representing cash conversion of 67% (2016: 45%). Cash conversion is defined as operating cash flow as a proportion of underlying operating profit. Reported cash generated from operations was 83.8m (2016: 75.9m). m Underlying EBITDA (Increase) in working capital (16.6) (10.2) Capitalised development costs (23.4) (19.9) Capital expenditure less disposals (30.6) (44.7) Operating cash flow Exceptional costs (22.0) (16.8) Net finance costs (10.8) (10.4) Taxation (15.0) (14.4) Free cash flow pre-dividend 4.0 (13.5) Dividends (5.5) (35.5) Free cash flow post-dividend (1.5) (49.0) Acquisitions - (39.7) Net proceeds from issue of equity Other (1.7) (5.2) Decrease/(increase) in net borrowings before exchange movement (93.6) Exchange translation movement 8.5 (51.0) Decrease/(increase) in net borrowings since 31 December 2016/ (144.6) Underlying EBITDA improved to 122.4m in the period, up from 102.9m in The increase in EBITDA broadly carried through to Operating cash flow as lower capital expenditure was offset by a higher working capital outflow and higher capitalised development (to drive future growth). Operating cash flow grew by 84% to 51.8m. 10

11 Cash outflows from exceptional costs at 22.0m relate to the costs of exiting sites as part of the re-design of the operating model, costs associated with the reorganisation into three divisions and the closure of the CVS business in Brazil. The majority of these exceptional cash flows had been provided for in prior years. Net borrowings and debt facilities Overall, net borrowings decreased during the year by 180.2m to 164.4m, largely due to the proceeds from the successful completion of the rights issue. This, combined with the improvement in operating profit, led to a reduction in the net debt to EBITDA ratio of 1.4 times compared to 3.2 times at the year-end 31 December A cornerstone of our financial planning is to ensure that we maintain committed loan finance which provides sufficient headroom above expected borrowing requirements and has a significant proportion with terms that exceed one year. Our committed bilateral revolving credit facilities total 235m, and will expire in In addition, we have total US Private Placement notes and Schuldschein loans of US Dollar $140m and Euro 77m outstanding, with maturities as seen in the following table: Maturity of Borrowings (including finance leases) Maturing within 2017 m One year One two years Two three years Three four years Four five years Total borrowings m The reduction in borrowings from 2016 to 2017 reflects the proceeds from the rights issue being used to pay down debt. Within the 2017 figures are borrowings associated with assets held for sale of 8.5m (2016: nil) and finance leases of 0.6m (2016: 9.1m). Covenants A key consideration for financial planning is to maintain sufficient headroom between borrowings and the ceiling set by the associated covenants. Our bank facilities, Schuldschein and US Private Placement loan notes contain two principal financial covenants: net debt / EBITDA (earnings before exceptional items, interest, tax, depreciation and amortisation) and interest cover. We are operating comfortably within our covenants. For the year ended 31 December 2017, net debt was 1.4 times EBITDA, against the maximum permitted of 3.5 times. Interest cover was 10.2 times, against the minimum requirement of 3.0 times. The expected headroom is routinely estimated against the covenants and the sensitivity to a number of scenarios is tested to ensure ongoing compliance. We do not anticipate approaching our covenant limits in the foreseeable future. 11

12 Currencies in 2017 The average and year-end exchange rates are set out in note 3. As a global business the Group is exposed to a number of foreign currencies. Whilst a significant proportion of our revenue is denominated in US Dollars, our costs are often in the local currency of the countries in which we operate. This leads to a mismatch and therefore an exposure to currency movements on a transactional basis. The table below shows the breakdown of our principal currency exposures for the 12 months ended 31 December Currency Sales Costs RMB 11% 33% EUR 20% 22% GBP 0% 3% KRW 2% 2% USD 65% 34% Other 2% 6% Total 100% 100% As a result of the above transactional exposure (and after any management actions to mitigate), using February 2018 closing exchange rates there would be a c. 4m net reduction in reported Sterling profits. There is also the translation impact in converting overseas profits into the Group s reporting currency (Sterling); each 1 cent appreciation / (depreciation) of the US Dollar against Sterling approximates to an annual increase / (decrease) in operating profit of 0.4m. Pensions There are approximately 1,500 deferred and current pensioners (2016: 1,500). There is an overall defined benefit pension scheme surplus under IAS 19 of 5.2m at 31 December 2017 (2016: 1.2m deficit). Scheme liabilities reduced in the period mainly due to a reduction in assumed inflation from 3.45% to 3.25% offset by a reduction in the discount rate from 2.50% to 2.45%. The reduction in the liabilities was partly offset by a reduction in the value of scheme assets to 131.8m (2016: 134.8m). Total equity Total equity at 31 December 2017 was 578.5m (31 December 2016: 352.5m). The reconciliation of total equity is set out in the Group statement of changes in equity. Return on capital employed Return on capital employed (underlying profit before interest and tax as a proportion of average shareholders funds plus net borrowings during the year) was 10.8% in 2017, compared with 9.5% in

13 Group income statement for the year ended 31 December 2017 m m Note Continuing operations 2 Revenue Performance Materials Connected Vehicle Solutions Wireless and Thermal Systems Operating profit before impairment of goodwill, amortisation of acquired intangible assets and exceptional items Impairment of goodwill - (155.5) Amortisation of acquired intangible assets (13.8) (17.2) 5 Exceptional items Operating profit/(loss) 63.8 (109.6) Finance revenue Finance costs (9.9) (11.1) Financial instruments fair value adjustments 2.8 (1.9) Other net finance income pension Profit/(loss) before tax 57.0 (122.3) Taxation Profit/(loss) for the year 71.8 (110.8) Attributable to: Equity shareholders of the parent company 71.6 (111.7) Non-controlling interests (110.8) (restated**) 6 Earnings/(loss) per share Basic earnings per share on profit/(loss) for the year* 15.8p (31.8)p Diluted earnings per share on profit/(loss) for the year* 15.8p (31.8)p * Attributable to equity shareholders of the parent company ** 2016 earnings/(loss) per share has been restated for the 2017 rights issue. 13

14 Group statement of comprehensive income for the year ended 31 December 2017 m m Profit/(loss) for the year 71.8 (110.8) Items that will not be reclassified subsequently to profit or loss: Net re-measurement gains on retirement benefit obligations net of tax Items that may be reclassified subsequently to profit or loss: Exchange differences on retranslation of overseas net investments (34.6) Exchange differences on net investment hedges 10.4 (57.6) (24.2) 74.1 Other comprehensive (loss)/income for the year (18.6) 74.2 Total comprehensive income/(loss) for the year 53.2 (36.6) Attributable to: Equity shareholders of the parent company 52.8 (39.8) Non-controlling interests (36.6) 14

15 Group statement of changes in equity for the year ended 31 December 2017 Attributable to equity shareholders of the parent company Equity Non- share Share Retained Translation Treasury Other controlling Total capital premium earnings reserve shares reserves Total Interests equity m m m m m m m m m for the year to 31 December 2016 At 1 January (13.7) (2.7) (33.3) (Loss) / profit for the year - - (111.7) (111.7) 0.9 (110.8) Other comprehensive income Total comprehensive (expense) / income - - (111.5) (39.8) 3.2 (36.6) Exercise of share options Issue of shares for acquisition Share based payments Treasury shares (2.2) - (2.2) - (2.2) Vesting of LTIPs/Restricted shares - - (2.2) Non-controlling interests - dividend (3.0) (3.0) Dividends paid - - (35.5) (35.5) - (35.5) At 31 December (161.8) (2.7) (33.3) for the year to 31 December 2017 At 1 January (161.8) (2.7) (33.3) Profit for the year Other comprehensive income / (expense) (24.5) - - (18.8) 0.2 (18.6) Total comprehensive income / (expense) (24.5) Exercise of share options Net proceeds from rights issue Share based payments Treasury shares (0.6) - (0.6) - (0.6) Vesting of LTIPs/Restricted shares - - (0.3) Non-controlling interests - dividend (0.5) (0.5) Dividends paid - - (5.5) (5.5) - (5.5) At 31 December (87.5) (3.0)

16 Group statement of financial position as at 31 December 2017 Note m m Assets Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Derivative financial instruments Retirement benefit assets Other non-current assets Current assets Inventories Trade and other receivables Income tax receivable Derivative financial instruments Cash and cash equivalents Assets classified as held for sale Liabilities Current liabilities 8 Borrowings (0.5) (0.3) Derivative financial instruments - (2.1) Trade and other payables (174.2) (192.0) Current tax liabilities (29.9) (33.9) Provisions (18.2) (26.8) 11 Liabilities directly associated with assets classified as held for sale (16.6) - (239.4) (255.1) Net current assets Non-current liabilities 8 Borrowings (207.8) (408.8) Derivative financial instruments (31.4) (31.0) Deferred tax liabilities (42.5) (76.8) Retirement benefit obligations (12.2) (13.7) Other non-current liabilities (2.0) (0.8) Provisions (5.7) (14.1) (301.6) (545.2) Net assets Capital and reserves 9 Equity share capital Share premium Retained loss (87.5) (161.8) Translation reserve Treasury shares (3.0) (2.7) Other reserves 81.8 (33.3) Equity attributable to owners of the parent company Non-controlling interests Total equity

17 Group cash flow statement for the year ended 31 December 2017 Note m m 9 Cash flows from operating activities Cash generated from operations Tax paid (15.0) (14.4) Net cash flows from operating activities Cash flow from investing activities Interest received Acquisition of businesses (net of cash acquired) - (39.7) Purchase of property, plant and equipment (28.0) (41.4) Purchase of software (2.6) (3.3) Purchase of intangible assets (internally developed) (23.4) (19.9) Net cash flows from investing activities (53.9) (104.2) Cash flows from financing activities Interest and other finance costs paid (10.9) (10.5) Net proceeds from issue of ordinary share capital Purchase of treasury shares (0.6) (2.2) Proceeds from borrowings Repayment of finance lease (8.5) - Repayments of borrowings (182.9) (35.0) Dividends paid to equity shareholders of the parent (5.5) (35.5) Dividends paid to non-controlling interests (0.5) (3.0) Net cash flows from financing activities (25.5) 28.5 Effects of movements in foreign exchange rates (1.5) Decrease in cash and cash equivalents for the year (12.1) (4.3) Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December

18 1 Basis of preparation Laird PLC is a public limited company incorporated and domiciled in England and Wales and its ordinary shares are traded on the London Stock Exchange. The condensed consolidated financial statements for the year ended 31 December 2017 were authorised for issue by the Board of Directors on 1 March The condensed consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The condensed consolidated financial statements have been prepared in accordance with the accounting policies followed in the preparation of the Group s annual consolidated financial statements for the year ended 31 December The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2017 or 31 December The annual report and financial statements for the year ended 31 December 2017 were approved by the Board of Directors on 1 March 2018 along with this preliminary announcement, but have not yet been delivered to the Registrar of Companies. The auditor s report on the statutory accounts for the year ended 31 December 2017 was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies. The auditor s report on the statutory accounts for the year ended 31 December 2016 was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act The 2017 annual report and financial statements, together with details of the Annual General Meeting, will be despatched to shareholders on 21 March The Annual General Meeting will take place on 27 April The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are uncertain tax provisions, the measurement of deferred tax assets, the measurement of litigation provisions, the discount rate and inflation rate used to determine the carrying amount of the Group s defined benefit obligation and impairment testing of goodwill for Connected Vehicle Solutions & Wireless and Thermal Systems. The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements of the Group. 18

19 2 Segmental analysis Explanatory note: The reportable segments are the operating divisions, Performance Materials, Connected Vehicle Solutions and Wireless & Thermal Systems. The financial performance of each segment is shown here. The Group s reportable segments are the operating businesses overseen by distinct divisional management and reported to the Group Executive Committee (which performs the function of the chief operating decision maker). The Group moved to a three division structure effective from 1 January The segmental results and segmental assets and liabilities for the comparative period have been restated for the purposes of comparability. Performance Materials designs and supplies precision metals, EMI shielding materials, thermal materials and magnetic and ceramic products. Connected Vehicles Solutions designs, manufactures and sells a range of products into the vehicle connectivity market. Wireless and Thermal Systems designs and manufactures products that enable connectivity across a range of end markets including antennae, industrial control systems and active engineered thermal management systems. For the year to 31 December 2017 Performance Materials Connected Vehicle Solutions Wireless and Thermal Systems Central and other costs m m m m m Revenue from customers Segment operating profit stated before: (5.8) 76.9 Amortisation of acquired intangible assets (3.0) (3.8) (7.0) - (13.8) Exceptional items (5.3) 6.1 (1.8) Operating profit (4.1) 63.8 Finance income 0.1 Finance costs (9.9) Financial instruments fair value movements 2.8 Other net finance income pension 0.2 Profit before tax 57.0 Tax 14.8 Profit for the year 71.8 Total 19

20 2 Segmental analysis (continued) For the year to 31 December 2016 (restated) Performance Materials Connected Vehicle Solutions Wireless and Thermal Systems Central and other costs m m m m m Revenue from customers Segment operating profit stated before: (7.6) 61.9 Impairment of goodwill - (52.0) (103.5) - (155.5) Amortisation of acquired intangible assets (4.1) (3.6) (9.5) - (17.2) Exceptional items 4.7 (4.1) 2.6 (2.0) 1.2 Operating loss 42.8 (46.7) (96.1) (9.6) (109.6) Finance income 0.1 Finance costs (11.1) Financial instruments fair value movements (1.9) Other net finance income pension 0.2 Loss before tax (122.3) Tax 11.5 Loss for the year (110.8) Revenue from one customer of the Performance Materials division represents 126.9m (2016: 105.5m) of the Group s total revenues. Performance Materials Connected Vehicle Solutions Wireless and Thermal Systems Total m m m m m m m m (restated) (restated) (restated) (restated) Segment assets , ,068.6 Unallocated assets Total assets , ,152.8 Segment liabilities Unallocated liabilities - borrowings other (see below) Total liabilities Other segment items Capital additions Acquisition of businesses Total additions Depreciation Impairment of goodwill Amortisation / impairment of intangible assets Unallocated assets in the above table include cash and cash equivalents, retirement benefit assets, tax recoverable, deferred tax assets and derivative financial instruments. Unallocated liabilities other in the above table include liabilities for current tax liabilities, deferred tax liabilities, retirement benefit obligations and derivative financial instruments. Total 20

21 2 Segmental analysis (continued) Geographic information The Group manages its business segments on a global basis and the parent company is resident in the UK. The revenue analysis in the table below is based on the location of the customer. The analysis of non-current assets is based on the location of the assets and for this purpose consists of property, plant and equipment and intangible assets. Revenue Non-current assets m m m m Continuing operations China Germany North America Asia and Australia excluding China Europe excluding Germany Rest of World Revenue from UK customers (the Company s country of domicile) was 16.7m (2016: 18.8m). UK non-current assets were 13.1m (2016: 12.8m). 3 Exchange rates Explanatory note: The results and cash flows of overseas subsidiaries are translated into sterling using the average rates of exchange for the year as disclosed below. The principal rates used were as follows: Average Closing Czech Koruna Euros Korean Won 1, , , , Renminbi (RMB) US Dollars

22 4 Operating profit/(loss) Explanatory note: This note sets out the material components of the Operating profit line on our Group income statement, including a detailed breakdown of the fees we paid to our auditor, Deloitte LLP, in respect of services they have provided to us during the year. m m Continuing operations Revenue Cost of sales (621.3) (522.3) Gross profit Selling, administration and other expenses (167.9) (325.9) Research and development expenditure (net of capitalised (83.6) (63.0) costs) Operating profit/(loss) before finance costs and tax 63.8 (109.6) Notes: (a) Included in selling, administration and other expenses is a 0.7m exceptional credit (2016: 1.2m credit) as described in note 5 and 13.8m (2016: 172.7m) of goodwill impairment and amortisation of acquired intangible assets. (b) Included in research and development expenditure is 16.1m (2016: 13.1m) of amortisation and impairment in respect of capitalised development costs. (c) Cost of inventories recognised as an expense within cost of sales was 407.8m (2016: 340.9m). m m Operating profit/(loss) for the year is stated after charging the following items: Staff costs Exceptional (credits)/costs Restructuring costs/(credits) 7.3 (0.4) Change in valuation of put and call options in respect of Model Solution (2.6) (3.8) Acquisition related credits (5.4) - Costs related to rights issue and covenant waiver fees (0.7) (1.2) Research and development expenditure Incurred Capitalised (23.4) (19.9) Impairment of capitalised development costs Depreciation and amortisation Property, plant and equipment Software Capitalised development costs Acquired intangible assets Operating lease rentals Hire of plant and machinery Other Auditor s remuneration* Audit fees - Audit of financial statements Audit of subsidiaries Total audit fees Audit related assurance services Corporate finance services included in operating profit Corporate finance services included in other reserves** Total non-audit services * Total fees paid to the auditor were 1.8m (2016: 1.7m). ** Corporate finance services in 2017 were in relation to the rights issue. These fees have been recorded in Other reserves, together with fees paid to other advisors on the rights issue. 22

23 5 Exceptional items Explanatory note: Exceptional items are items of income or expense incurred outside the normal course of business, and are considered to be material and infrequent in nature. This note provides a detailed breakdown of the "Exceptional items" line included on the Group income statement. Note m m Continuing operations Performance Materials (a) Acquisition related credit Change in valuation of put and call options in respect of Model Solution (b) Restructuring (costs)/credits (8.5) 0.9 (5.3) 4.7 Connected Vehicle Solutions (a) Acquisition related credit (b) Restructuring credits/(costs) 1.9 (4.1) 6.1 (4.1) Wireless and Thermal Systems (b) Restructuring (costs)/credits (1.8) 2.6 (1.8) 2.6 Unallocated credits/(costs) (a) Acquisition related credit (b) Restructuring credits Costs related to rights issue and covenant waiver fees - (3.0) 1.7 (2.0) Net credit Notes: (a) The acquisition related credits relate to a settlement with the previous owner of Novero, a settlement with an ex-sales representative of Novero and the release of an onerous provision that was on the balance sheet when the Group acquired Novero which has been exited during the year. (b) Restructuring costs relate to the re-design of the Group s operating model announced in 2015, the reorganisation into a three division structure announced in 2017 and the exit of the Connected Vehicle Solutions business in Brazil. The total cash outlay for exceptional costs in 2017 was 22.0m (2016: 16.8m). The tax effect on exceptional items in 2017 is a 3.4m tax credit (2016: 3.6m credit). 23

24 6 Earnings per share Explanatory note: Earnings per share (EPS) represents the amount of our earnings (post-tax credits/losses) that are attributable to each ordinary share we have in issue. The calculation of basic and diluted earnings per share is based on the profit for the year divided by the daily average of the number of shares in issue during the year. Diluted earnings per share is based on the same profit but with the number of shares increased to reflect the daily average effect of relevant share options granted but not yet exercised where performance conditions have been met and shares are contingently issuable. m m Profit/(loss)* Profit/(loss) for the year attributable to equity shareholders of the parent company 71.6 (111.7) Number Number of shares of shares (restated) (m) (m) Weighted average shares Basic weighted average shares Options Diluted weighted average shares Pence Pence Earnings per share* (restated) Basic on profit/(loss) for the year 15.8 (31.8) Diluted on profit/(loss) for the year 15.8 (31.8) * Attributable to equity shareholders of the parent company 2016 weighted average number of shares and earnings/(loss) per share have been restated for the 2017 rights issue to allow meaningful comparison with 2017 earnings per share. 24

25 7 Underlying results and taxation Explanatory note: Underlying profit and earnings per share are shown as the Board considers them to be relevant guides to the performance of the Group. Underlying tax is stated before tax on exceptional items, deferred tax on the amortisation of acquired intangible assets, goodwill and US capitalised development costs, the gain or loss on disposal of businesses and the impact arising from the fair valuation of financial instruments. The deferred tax impact of short-term losses and current tax on the amortisation of acquired intangible assets and impairment of goodwill are included in the calculation of underlying tax. The underlying tax charge for the year is equivalent to 24.1% (2016: 24.9%) of underlying profit before tax. m m Profit Operating profit before impairment of goodwill, amortisation of acquired intangible assets and exceptional items Finance income Finance costs (9.9) (11.1) Other finance income pension Underlying profit before tax Tax The underlying tax charge is calculated as follows: Underlying tax Underlying tax rate 24.1% 24.9% Tax credit on exceptional items (3.4) (3.6) Deferred tax on goodwill, acquired intangible assets and US capitalised development costs (31.1) (19.4) US tax loss movement/(recognition) 3.5 (1.2) Total tax credit (14.8) (11.5) Pence Pence (restated) Underlying earnings per share* Underlying earnings per share - basic Underlying earnings per share - diluted * Attributable to equity shareholders of the parent company 2016 underlying earnings per share has been restated for the 2017 rights issue to allow meaningful comparison with 2017 earnings per share. 25

26 8 Dividends paid and proposed Explanatory note: Dividends are the amounts we return to our shareholders and are paid as an amount per ordinary share held. On 1 March 2018 the Board announced that it had reached agreement on the terms of a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Laird plc. Further details are provided in note 12. As a result of this announcement no final dividend is currently proposed. Dividends paid are charged to retained earnings on the earlier of the date of payment or the date on which they become a liability of the Company. Total Dividends Dividends paid Dividends declared / proposed* m m m m Final Interim Interim Final Dividends per share Dividends paid Dividends declared / proposed* Pence Pence Pence Pence Final Interim Interim Final * Attributable to the year 26